Article

Learning to share

When Michael Rogers assumed his current role as Summit, N.J., city administrator in September 2015, he immediately found himself embroiled in a “very contentious,” citywide parking squabble.

“We have plenty of parking,” he says. “It’s just that it’s used.”

Local parking studies had revealed a weekday parking deficit of about 200-400 spaces in Summit, which is a regional transit hub about 22 miles west of Manhattan, Rogers says. Being opposed to the proposition of building another parking lot or structure, Rogers racked his brain for an alternative focused on residents.

Rogers’ own use of Uber inspired an idea. By October 2016, that idea materialized in the city’s subsidization of Uber rides to and from transit stations, which naturally led to more parking availability. The solution has since transformed into Summit subsidizing Lyft rides.

Five months before Rogers started at Summit, Uber withdrew from operating in Eugene, Ore., over issues with city requirements concerning Uber drivers’ background checks, vehicle safety inspections and insurance, according to Eugene Planning and Development Department Communications Analyst Lindsay Selser. The ridesharing giant had operated there less than a year, and no additional transportation networking companies (TNCs) applied to operate in Eugene.

About 2.5 years later, however, the Eugene Chamber of Commerce and locals lobbied the city to amend its TNC-related rules. The city has since introduced updated rules to cater more to TNCs, and a public hearing is scheduled for mid-April to determine potential next steps towards a more TNC-friendly regulatory environment.

Lying on opposite ends of the U.S., the distance between Summit and Eugene is an apt analogy to municipal navigation of the disruptive sharing economy. Some have forged beneficial partnerships with companies like Lyft and Airbnb. At the opposite end, others have struggled to update their regulatory frameworks to accommodate ridesharing and homesharing models.

In between are many cities that have adequately addressed ridesharing and/or homesharing. There are some too, that haven’t issued a stance on certain parts of the sharing economy like the short-term rentals (STRs) that Airbnb offers.

As the sharing economy grows ever more ubiquitous, the opportunity to form partnerships with companies while issuing definitive regulations on their models continues to grow. But doing so isn’t always easy in practice.

“The reason I think that [sharing economy companies have] ruffled so many feathers so to speak is because in a lot of ways, they don’t fit into existing regulatory frameworks,” remarks Nicole DuPuis, principal associate for urban innovation in the Center for City Solutions at the National League of Cities (NLC).

Shifting to sharing

The platform-based sharing economy is made up of TNCs (also called ridesharing companies) like Uber and Lyft, homesharing companies like Airbnb and HomeAway and a host of others. Its existence in the U.S. represents a shift in economic models, says Arun Sundararajan, a professor of business at New York University and author of a book on the sharing economy.

A general 20th-century business model involves a company hiring full-time employees, producing goods or services and selling them to customers. A sharing economy company instead uses a platform — an app or website — to “own” the relationship with customers and to aggregate demand. The production/delivery of goods and services — a ride or STR— is then delegated to “a distributed and heterogeneous crowd,” Sundararajan says.

The new models have disrupted both industries like lodging and taxis as well as local regulation of those industries. A Hilton hotel can’t always be regulated to the same standards as an Airbnb-listed house within a residential zone.

“From the point of view of a government, there’s an established base of existing regulation that is… there for a reason,” Sundararajan explains. “Thinking about just throwing that out and replacing it with something new because there’s a new business model runs counter to how government thinks.”

However, most governments don’t seem opposed to the sharing economy model —a 2017 NLC survey of 224 cities showed that 62 percent of respondents supported its growth. Moreover, 55 percent of respondents said their governments had good or very good relationships with sharing economy companies.

Nevertheless, they break the mold of how transportation and lodging are traditionally governed. “[Sharing economy companies have] kind of forced a lot of cities to go to the drawing board and to determine how to develop a new regulatory schema that accommodates these new business models,” DuPuis, who co-authored the NLC’s report on the 2017 survey, says.

While 79 percent of the NLC-surveyed cities reported being willing to partner with a sharing economy company, only 16 percent said they had.

Some that have though, have begun to realize the benefits of doing so.

Collaborative capabilities

Step back to 2015 in parking-limited Summit. In using Uber, Rogers thought, “wouldn’t it be great if we could offer to our residents or commuters this option of… at their convenience, being picked up at their house and dropped off at the train station? And then vice versa.” He got positive feedback from locals, elected officials and people at Uber’s Hoboken, N.J., office. During the last two weeks of 2015, Summit partnered with Uber to offer $5 rides that both began and ended in Summit, he says. The city subsidized the remaining costs of the rides.

The program was a success, and Rogers prepared a request for proposal (RFP) for a technology platform to enable a rideshare subsidization program. Users would be incentivized to participate by paying $2 per ride to and from area transit stations — equal to the $4 most spend to park in Summit. Again, the city would pay the remaining costs of the rides.

Interest was present from the start — the six-month pilot program with Uber reached its capacity of 100 users within the first week. The ultimately-15-month program with Uber ended in December 2017 with 135 users out of a budgeted 150 and a 30 percent utilization rate.

Rogers estimates that city subsidization costs totaled about $85,000 over the 15-month period. While just about 30 spaces were freed up per day, the cost was a far cry from the $3.7 to $4 million officials estimated that a new 100-person parking structure would cost over 20 years, according to Rogers.

When Summit put out another RFP in October 2017, Lyft offered the ability for users to schedule rides in advance — a feature that city surveys had shown users wanting. Participation rates have increased since Summit debuted the new 12-month rideshare subsidization program with Lyft in December 2017. As of March, the program frees up about 40 parking spaces per day, with between 1,300 and 1,400 rides being taken per month. Currently, the program has 175 users.

That low labor intensity for the city is an attribute of New Orleans’ collaboration with Airbnb. In 2015, the New Orleans city council directed its planning commission to conduct a study on proposed standards for creating an STR-centric regulatory framework, according to New Orleans Director of Safety and Permits Jared Munster. That study led to the eventual zoning ordinance amendment and city code ordinance that built the city’s framework.

STR platform companies were a steady presence throughout New Orleans officials’ progression towards creating a more solidified regulatory framework. “We worked with them to create this framework, to try to build something that both sides could work with,” Munster says.

New Orleans’ zoning ordinance amendment and city code ordinance were adopted on Dec. 1, 2016, and went into effect in April 2017. Airbnb plays a few collaborative roles as part of the new framework. The company created a “pass-through” registration in its system such that for license processing, the company database ties into the city’s database, Munster says. Additionally, Airbnb actively de-lists properties from its site that don’t have licenses with the city. The company shares hosts’ names, addresses, number of bedrooms being listed and contact information monthly with New Orleans, and it collects and remits taxes to the city on behalf of hosts, per the company’s site.

As for the regulatory framework itself, Munster believes it gives added accountability to property owners and helps city employees get in touch with them if issues arise. Data that’s being collected will allow city employees and officials to better understand the growing STR market, he says.

The city has had impressive results with compliance and enforcement. In the 2015 planning commission study, New Orleans officials estimated that the city had between 4,000 and 5,000 STRs. So far, the city has issued just over 4,000 licenses, a licensing compliance rate that Munster says equals “in the high 90 percent.”

As of late March, the city has collected $950,000 in license fees (which is aimed towards offsetting enforcement costs), brought 200 violation cases to hearings and assessed nearly $270,000 in fines. “We’re aggressively licensing, we’re aggressively enforcing and looking to continue to do so,” Munster says.

Getting to such a point, however, isn’t always a smooth process for municipalities.

Regulatory roadblocks

In the NLC study, 52 percent of respondents said that one of their largest concerns with the growth of STR companies was non-compliance with current standards.

This was one of the issues surrounding Palm Desert, Calif.’s revision of its STR policy. Palm Desert initially issued an STR ordinance in 2012, and during the first few years the ordinance was in place, the city issued a “couple hundred” STR permits, Palm Desert Community Development Director Ryan Stendell says.

However, by January 2017, the city had issued 1,228 permits.

“We weren’t prepared at all for operations of 1,228 units within the city,” he admits. “We weren’t staffed from a code perspective, our ordinance needed a little bit more teeth in it.”

By that time, the community “was definitely complaining,” with neighborhood compatibility and code compliance being common themes. To get a handle on creating adequate regulations and staffing accordingly, the city instituted a yearlong moratorium on new STRs.

While proving helpful, the city received a lot of complaints about the move.

“Moratoriums, in any case, can be very divisive,” Stendell says. “You’re going to usually split the issue right away. But hitting the time-out occasionally isn’t a bad idea.”

Public hearings for the new STR regulations also proved schismatic at first. “It was very ‘us vs. them’,” Stendell says, recalling lots of anxiety on both sides. But he worked hard to uphold order and foster respectful dialogue at public hearings.

Ultimately, the major issue proved to be zoning. Palm Desert thus banned STRs from its lowest density residential zones — neighborhoods that held many large estate properties with a set grace period for phasing out existing STRs there.

“I was actually proud of the council at the end of it,” Stendell says. “I think they did strike a balance.”

Eugene is now trying to strike such a balance between its desires for upholding public safety and the desires of its residents in bringing TNCs back to the city.

When Uber began operating in Eugene in July 2014, the city code didn’t allow smartphone applications to be used for fare calculation and charging, Selser says. By February 2015, the council approved code updates to allow TNCs to operate in Eugene.

The city immediately entered a rulemaking phase to establish rules for TNCs. City officials offered to let Uber operate under a temporary authorization, but the city wasn’t willing to budge on three requirements: requiring drivers to obtain background checks through the Eugene Police Department’s law enforcement database, producing proof of adequate commercial liability insurance and verifying vehicle maintenance and safety through a city inspection, according to Selser and city documents.

“Our council at the time and continues to this day to still hold public safety at the highest regard around these issues,” Selser says. The city’s concerns match those of others — about 60 percent of NLC-surveyed cities reported that their biggest concern with the growth of TNCs was public safety.

However, Uber took issue with the requirements and ultimately exited the city on April 5, 2015, according to Selser and a company blog post. Other TNCs subsequently didn’t apply to enter Eugene. “Our understanding is that what was in place didn’t meet their business models well enough. So they never came, even though it was legal,” Selser says.

On Oct. 31, 2017, the Eugene Chamber of Commerce issued an emailed statement to its members, advocating them to “urge city staff and elected officials to make the updates to our local codes that would support these companies to service our Eugene/ Springfield community,” a news report from Eugene, Ore., TV station KVAL shows. The advocacy came after the chamber’s members voiced that “they support ride-sharing services like Lyft or Uber coming to [the] community.”

In the years after Uber had exited Eugene, insurance models surrounding TNCs had evolved and Eugene officials saw TNCs successfully operating in other cities across Oregon, according to Selser. So, city council officials decided to open discussions on the matter. In February, the Eugene Planning and Development Department presented an approach to the city council for updating the city’s code rules regarding TNCs. The council then directed the department to create a proposed ordinance that would increase the likelihood of TNCs operating in Eugene.

Eugene based its updated approach on the TNC-related regulations of Medford, Ore. The major proposed changes include allowing TNCs to use their own third-party background checks for drivers, with the city retaining the right to perform an independent criminal background check using the Eugene Police database. Additionally, TNCs would be allowed to conduct a vehicle inspection by a certified mechanic.

Selser says that the city has been in communications with stakeholders, representatives from Uber and Lyft and taxi companies to ensure that people remain informed throughout the updating process. A public hearing was scheduled for April 16 for the proposed changes, and if all goes smoothly, Selser predicts that ridesharing services could be present in Eugene by this summer.

A look forward

The issues that the sharing economy gives rise to are difficult to solve with a blanketing solution, as cities’ issues can be unique. A sprawling city like Atlanta might possess different issues pertaining to ride-hailing and lodging than a dense city like Seattle.

However, Sundararajan believes there is knowledge to be gained on the sharing economy by following others’ examples. “I think cities would do well to share solutions and perhaps to look to the larger cities for templates,” he says. “I think that there is some knowledge sharing across the smaller cities, but [there] is certainly a lot more that could be done.”

While many cities (and states) have established regulation of sharing economy models and partnerships with the models’ purveyors, government’s relationship with the sharing economy is far from being a closed chapter.

News reports from across the country show that the state of New York’s 2019 budget will include an added $2.75 surcharge on ridesharing service rides. The Seattle City Council is currently exploring a minimum base fare for all for-hire transportation companies. So far in 2018, multiple cities such as Broadview Heights, Ohio, Golden, Colo. and Orange Beach, Ala. have instituted STR moratoriums like Palm Desert’s to help in determining better regulations. In March, Alabama became the 45th state to pass TNC-related legislation.

So the one certainty cities can probably expect from the sharing economy is that of change. “Definitely, we can anticipate that [the sharing economy is] going to be an ongoing discussion and we can expect to see some regulatory shifts,” DuPuis says.

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